Oil fluctuates after Spain's downgrade, inventories data

Report shows higher-than-expected increase in stockpiles

PolyaLesova

SAN FRANCISCO (MarketWatch) -- Crude-oil futures seesawed Wednesday, recently edging higher following a higher-than-expected increase in U.S. oil stockpiles and a debt ratings downgrade for Spain.

Crude for June delivery gained 27 cents, or 0.3%, to $82.74 a barrel on the Comex division of the New York Mercantile Exchange. Earlier, the contract had fallen to an intraday low of $81.23 a barrel.

"It's going to be a casino here for the next two weeks," said James Cordier, a portfolio manager at OptionSellers.com in Tampa, Fla.

Traders will likely to focus on news from the European Union and any headlines that reinforce and undermine the notion that the economic recovery is here to stay, he added.

Oil futures fell 2.1% on Tuesday after the Greece and Portugal downgrades as investors shied away from assets perceived as higher risk such as oil and other commodities. S&P's downgrade for Spain didn't have the same devastating effect.

"It is very difficult to explain" the market's recent gains just looking at the current fundamentals of supply and demand, Cordier said.

The Energy Information Administration on Wednesday reported a higher-than-expected increase in stockpiles, and prices remained lower immediately following the report.

But prices found their way up again as traders focused on the few positive aspects of the report, particularly a surprise decline in gasoline inventories, and tracked a modest rebound for U.S. stocks at the time.

The EIA reported an increase of 1.96 million barrels in the U.S. oil inventories in the week ended April 23, whereas analysts surveyed by Platts had expected a rise of 1.4 million barrels.

Gasoline stocks declined by 1.24 million barrels; analysts has expected a build of 500,000 barrels. Stocks of distillates, which include heating oil and diesel, were up by 2.93 million barrels when the expectation was of an increase of 1.2 million barrels.

Gasoline for June delivery pared some losses following the EIA report, recently trading down 2 cents, or 0.7%, to $2.31 a gallon on Comex. Heating oil for June delivery lost 2 cents, or 0.9%, to $2.23 a gallon.

Refineries run at 89% of their capacity, higher than expected. Crude stocks in Cushing, Okla., the delivery point for New York Mercantile Exchange oil, increased by nearly half a million barrels.

The increase in Cushing and the overall build in inventories "will put pressure throughout the whole energy complex," said Tariq Zahir with Tyche Capital Advisors.

Earlier Wednesday, European Central Bank President Jean-Claude Trichet said the aid plan for Greece is likely to be completed within "a few days." Trichet spoke at a news conference along with Dominique Strauss-Kahn, managing director of the International Monetary Fund, and Wolfgang Schaeuble, Germany's finance minister.

German Chancellor Angela Merkel is due to make a statement later on Wednesday.

The euro
EURUSD, +0.2650%
rose to $1.3212 from $1.3179 in North American trading late Tuesday. Still, the single currency traded lower than the $1.3357 level seen ahead of Standard & Poor's credit-rating downgrades for Greece and Portugal announced Tuesday.

The dollar index
DXY, -0.19%
which tracks the U.S. currency against a basket of six major currencies, edged up to 82.57 from 82.293 late Tuesday.

German insistence that aid to Greece needs to come with strings attached and fears that, even if successful, a rescue plan would buy the debt-ridden country just limited time to deal with its fiscal problems have plagued the market in recent days.

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